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2019 (9) TMI 695 - AAR - GSTClassification of royalty payments - taxability - reverse charge mechanism - royalty payments to Government in respect of Mining lease under “Licensing services for Right to use minerals falling under the heading 9973 - liability of tax - contributions made to District Mineral Foundation (DMF) and National Mineral Exploration trust (NMET) as per MMDR Act, 1957. HELD THAT:- It is clear that the supply made by the government, i.e. the right to mine the resources is taxable under Section 9 of the Act and is within the meaning of the term ‘supply as covered by Section 7. That, in order to classify as a supply, two important conditions are to be met. First, it should be in the course or furtherance of business. It must also be noted that as per Section 2(17), inter alia, any activity undertaken by the Central Government in which they are engaged as public authorities shall be deemed to be a business. Hence, the royalty received by the Government in lieu of the mining rights shall also be deemed to be for business purposes - Furthermore, this is a service which is provided by the Central Government to the applicant being a business entity, and is therefore liable to be paid by the recipient under reverse charge, in terms of Sr. No. 5 of Notification No. 13/2017 - CT (Rate) dated 28.06.2017. Hence, the said service is taxable under reverse charge basis. The services received by the applicant shall be classified under heading 997337. Whether the license to extract mineral ore and also the right to use such minerals extracted is a leasing or rental service? - HELD THAT:- It is clear that what is supplied by the Government is the service by way of license to extract and use mineral ores and that is not covered by any specific entries in the serial no. 17 of the Notification and hence falls under the residual entry- Since the transaction is between the State Government and the applicant and the services are supplied by the state government to the applicant which is a business entity, and the transaction being a supply not covered under the exception, the applicant being the recipient of such service shall have to pay tax on the said supply under reverse charge mechanism as per Notification No. 13/2017 - Central Tax (Rate) dated 28.06.2017. Taxability of the contributions made to District Mineral Foundation (DMF) and the National Mineral Exploration Trust (NMDF) - HELD THAT:- The money payable to the DMF and the NMET may be treated as nothing but royalty itself, since these contributions are described as being ‘in addition to’ the payment of royalty, which itself is “in respect of the mining rights. As such, therefore, such amounts are paid in respect of mining rights and the said supply is already deemed to be taxable under reverse charge basis. Thus, the said contributions are nothing but additions to the royalty payable for the original supply itself, and is therefore liable to be added to the value of the original supply and treated accordingly for the purposes of GST.
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